Moderate To Modest - The Fed "Word Change" Heard Around The World

Fed Statement Word Change “Dictionary Entry” Heard ‘Round The World

Washington – It started moments after the release of the Federal Reserve’s latest decision on interest rates. Even though officially they announced maintaining the same policies of low rates and Quantitative Easing, it was a single word change in the official text of their press release from the prior month that sent shockwaves around the world and changed everything forever.

First on the story was CNBC, whose always erudite and deep-thinking Steve Leisman pointed out the startling revelation. In analyzing the current state of the economy, the Federal Reserve had changed the word “Moderate” to “Modest”

Given the importance of such a change on the global economy and the billions of people that work, invest and live within it, other media outlets jumped on the news immediately, and it was reported in everywhere from the Arkansas Business magazine to Channel News Asian. By the next morning, the Wall Street Journal had posted a detailed quantitative analysis of past word usage by the Fed. But far more important than the reporting of the word-change was the way it impacted the lives of ordinary people.

George Lagolla was sitting inside his Woodstown, New Jersey pizza shop when he heard the news on the radio. With the success of his new garlic infused tomato sauce, Lagolla was busy filling out a bank application for a loan to open up a second location. Upon hearing the news, he tore up the application. “Sure I take into account demand, labor costs and the availability of rental space” Lagolla told us, “but none of that stuff matters when the Federal Reserve changes one word out of 500 in its latest statement. Part of being a smart businessman is knowing what really matters.”

A similar tale was told to us on the phone by Jenny Chow, a sharp 23 year old marketing executive who has been applying to graduate school. “I was totally gearing up to go to business school and get my MBA, but that was back when the economy was growing Moderately. Now that its only growing Modestly, I’m thinking law school. I’m blessed in that my parents taught me to make major life decisions based on what really matters.”

The shockwave was also felt in the corridors of power. In the Gulf Coast, refineries started planning to reduce gasoline production from levels appropriate during a Moderate recovery to ones better suited for Modest. In Hollywood a major studio was reported to scratch plans for the next mega-budget blockbuster to focus on the kind of cheap to produce and feel good comedies viewers prefer during Modest times. In the White House plans were drawn up for the President to give yet another speech on the economy. His last speech did not get much attention, but as Press Secretary Jay Carney put it, they expect “a huge audience” this time around. Asked why the speech was to be given during business hours when people are at work and not prime time, Carney responded “this being a Modest economy there aren’t that many people working, are there?”

Perhaps nowhere was the impact of the change greater than the live air shows of the financial news network that broke the change. Hard hitting investigative reporter Bob Pisani announced a Twitter contest on what the Fed should change the word to if the economy grows even weaker, throwing in his preference, Modicum. Ultra laid back commentator Jim Cramer said that during his lightening rounds he will start distinguishing between “Modest buys” and “Moderate buys” to help his viewers make even more money. But nobody captured the excitement more than veteran anchorwoman Maria Bartoromo. As she explained during her Closing Bell show. “Here at CNBC, we pride ourselves on breaking the kind of news that really matters, and really makes an impact on the lives of not just people on Wall Street, but every American. Today’s word change is exactly that kind of news, so on behalf of all of us here at CNBC, you are welcome."